Corona and Lease Agreements Vol. 2

Blogs March 25, 2020

Real Estate and Construction

What does the law state about duty to pay rent, if the leased premises are required to be temporarily closed due to an order of the authority or the tenant’s business is forbidden in order to prevent the spreading of coronavirus

As it was noted in our earlier blog, the Act on Commercial Leases (21 §) provides that the tenant is entitled to an exemption in rent payment or to a reduction in rent for the period during which the premises could not be used. This provision on the right of the tenant to be exempted from the payment of rent or the right to pay reasonably reduced rent, is not a peremptory provision. The parties can agree on the lease agreement that the tenant is not entitled to any reduction in the rent or the conditions under which the right to a reduction in rent exists.

Restrictions directed at the tenant’s actions

If the authorities’ prohibition applies to the tenant’s business practiced at the premises, such as closing of a school or a day-care, it is a great question, whether this is a situation within the meaning of the legislation which justifies the exemption from the rent. The starting point is that the lessor is not responsible for anything else than providing the premises at the tenant’s use and the tenant bears the responsibility for practicing it’s business at the premises. When enacting the Act on Commercial Leases the current situation regarding coronavirus was not taken into account and the thinking at that time was largely based on the fact that the use had to be banned precisely because of a fault in the building.

The main rule is that the restrictions to the tenant’s business do not directly entitle to an exemption from the rent. Nevertheless, it is an entirely different matter that while the law may not give a straight answer, based on its provision relating to adjusting (5 §), it can be deemed that the risk should not be solely for the tenant to bear if the restrictions continue for a long time. This would, among other things, enable the possibility to adjust the term regarding payment of the rent.

It must be noted that he enforcement of the Emergency Powers Act affects the evaluation of the duties and the evaluation has to be done case-by-case.